My talk is based on a CBO study from May 2006, with some updates for Navy's recent 2007 Ship building plan. I assess lower cost options or the future fleet, because the Navy can't afford the plan it has put out.

Outline of the talk

Options

Capabilities comparison

Implications for the industrial base

Central conclusions:

Navy's 2007 ship building plans will likely cost more than the Navy estimates and much more than what the Navy has been spending over past 5 years. The service has averaged about 11.5 billion on average on shipbuilding spending in 2002 to 2007.

Average in the plan for 2008 to 2037 assumes about double that gets spent each year over the next 30 years—about $22.5 billion.

Stability of the plan is overrated. This is said to be one of the key ways they will achieve lower costs.

If this funding does not materialize, Navy will have to:

spend more to buy ships and aircraft

buy less expensive ships and aircraft

buy fewer ships and aircraft and a smaller fleet

Background:

Currently Navy has a 275 ship fleet, wants to build up to 313 ships. More surface combatants, fewer submarines, fewer support ships. Mine warfare and frigate ships are going to be replaced by LCSs.

The Navy has basically settled on the idea they need about 300 ships.

The LCS is relatively small naval surface combatant with interchangeable modules for ASW, mine clearing or anti-surface warfare against small boats.

One of the big questions is replacement of SSBNs. Currently we assume 33 year service life for attack sub, 42 year service life for SSBN.

How does the Navy pay for its plan?

$13.4 billion in 2005 billion dollars in new construction is the often cited figure; updating that for inflation, it's actually $15.4 billion in 2008 billion dollars in new construction.

Add in nuclear refuelings, LCS mission modules, surface combatants, and the Navy says it needs more like $17.3 billion.

Yet the Navy assumes no real growth in the Navy's topline—how will the service pay for more ships?

Assumptions behind Navy plan:

Research and Development spending comes down and stays down—that is reasonable because it's been at historic high. But does it stay down for 30 years?

Operations and maintenance spending sees no real growth. Not very reasonable assumption based on history and the age of the fleet over 30 years.

Military personnel spending (salaries and benefits) sees no real growth. Endstrength is reduced to compensate for any increases in salaries and benefits above the rate of inflation.

Strict cost targets/goals for ships beyond 2013. Cost targets are not based on actual ship designs but on historical budget shares devoted to particular ship types. So these are targets, not estimates.

My estimates vs. the Navy's:

This big difference between my estimates and the Navy's is that I use cost-to-weight relationships historically rather than these cost targets. Mine are higher in some areas.

Used historical cost-weight relationships for most Navy ship types. Relied on Navy budget estimates for carriers and LCSs. LCS costs have risen dramatically since the study was completed.

[This presentation contained many charts and graphs that cannot be reproduced in words.]

Navy's position on LCS construction is that they want 2 companies involved in building the ships. Lockheed Martin and General Dynamics are the companies involved in that process today, but that could change, especially with the recent cancellation of Lockheed's second ship.

The Navy may prefer the GD version of the LCS but one problem with it is that we don't have a lot of recent experience with aluminum hulls. The last one was the Stark, which is only partially aluminum.

General approach of the options:

Option 1: roughly proportionate reductions across the major ship types.

Other than Option 1, these are unbalanced fleets. These options are meant to highlight tradeoffs, with option 1 as the control, so to speak. You get fleets from as low as 181 ships to 241 ships. These are still relatively small fleets.

Navy is now reducing aircraft procurement in it 2008 budget.

At the top level these options look the similar—it's the breakdown of what we spend on things that changes.

Measures of comparison

The Navy builds its plan based on 3 classified scenarios. They have elaborate campaign analysis models that provide estimates of how many ships are needed.

You have to dig deep into the assumptions to get good guesses about why the Navy wants what it wants.

Key assumptions for estimating relative capabilities

Continued fleet response plan for carriers. Instituted in 2001 to make carriers more readily available. Maybe you now have 8 of 12 or 7 of 11 available now instead of 5 or 6.

Expand Sea Swap to most major surface combatants. Rotate crews to ships that stay overseas. 40% more presence from the one ship. (Navy has since decided they are not actually doing this—so my 2006 assumption needs to be changed.)

Nine submarines based in Guam, not three as current. (Navy has no plans to do this now because of needed investment in ports there.)